US-China trade restrictions weigh on semiconductors
Semiconductor manufacturing has become a critical geopolitical issue. Nearly 70% of semiconductors are manufactured in Taiwan and China, which many view as a significant supply-chain vulnerability and risk to national security. The sector is increasingly seen as strategically important in the context of a power conflict between the US and China, and, accordingly, has been at the center of recent legislation, including:
1. The CHIPS Act of 2022, which authorizes US$52 billion in federal funding for domestic semiconductor production, as well as research and development
The US has committed to investments intended to help facilitate the reshoring of chip production, as have the EU and Japan. In response, it’s likely that China will champion domestic alternatives to US semiconductor-equipment suppliers. Current domestic suppliers are very small and far behind on the technology. We believe that they’re at least five — and more likely 10 — years behind their global competitors.
In our view, globalization has peaked, and the semiconductor manufacturing landscape will look quite different in the coming years.
2. Export restrictions on US companies that produce semiconductors in China
In October, the Biden administration implemented new restrictions on US companies that produce semiconductors in China. These will have varying impacts on specific companies, but the overall takeaway is that the US government now reserves the right to review any semiconductor-related technology sold to China.
While these restrictions have been put in place primarily to stop the shipment and manufacture of chips that could be used in military applications, in effect, they bring China’s stated ambition of becoming a leading-edge semiconductor manufacturing powerhouse to a grinding halt.
It’s worth noting that while semiconductor regulations address the hardware side of the strategic sectors in this power conflict, there could be future restrictions applied to software, biotech, quantum computing, and AI, which could further strain the already tense relationship between the US and China.